The Burbank IKEA currently sits on a city-owned piece of property at 600 N. San Fernando Blvd., adjacent to the Burbank Town Center. The IKEA is also the beneficiary of a 95-year, rent-free lease from the city of which 72 years still remain. Even with the generous benefits afforded to the IKEA, they wish to move. The good news is IKEA wants to stay in Burbank and is looking to acquire a large site at 805 S. San Fernando Blvd. (near Alameda Avenue). Better yet, the Burbank Town Center is looking to acquire the property the IKEA sits on from the city of Burbank to expand its operations associated with the Town Center.
As a part of the proposed resolutions brought before the city, the owners of the Burbank Town Center asked the city to promise to buy back the IKEA site (at a premium), at any time in the next 10 years, if the IKEA chooses not to leave the current location. This is a pretty logical caveat; the Burbank Town Center doesn't want to buy a piece of property whose tenant has a 72- year rent-free lease.
At first blush this is a win-win-win for the city, for IKEA and for the Burbank Town Center. The currently unused 805 S. San Fernando Blvd. would house a new, bigger IKEA in a part of the city that needs further development; the former IKEA site would be used to enhance the attractiveness of the Burbank Town Center; and the city of Burbank would see increased sales tax revenues from the bigger IKEA, from the Town Center and from the former IKEA site (both in its sale and in newly acquired property taxes).
Here comes the tricky part — the sale price of the current IKEA site to the owners of the Burbank Town Center. The current value of the IKEA site is very low, because if one were to purchase the property, the buyer couldn't charge rent to the current tenant, IKEA, for 72 years. This makes the purchase logical only if you plan on living quite a long time or if you roll the dice that IKEA will leave. As such, the IKEA site is currently assessed at $1.46 million (and a negotiated $1.3 million sale price to the Burbank Town Center), a point brought out by Councilman David Gordon during a City Council meeting.
However, the Town Center would only be acquiring the IKEA site if the IKEA were not there, as the explicit 10-year window gives them the opportunity to sell the property back to the city. Thus the market value of the IKEA site to the Town Center in such circumstances is not the current value with the IKEA at the location with a 72-year, rent-free lease, but instead the value of the IKEA site with no tenant. What is the value for the site in that situation? The City Council didn't even bother to ask the city staff this incredibly basic question.
Further, during the meeting no one on the City Council inquired what impact this sale of the IKEA site for $1.3 million would have on IKEA's move to the location at 805 S. San Fernando Blvd. Is IKEA moving to that location because they are getting a sweetheart deal from the Burbank Town Center? Is that sweetheart deal contingent upon the city practically giving away the current IKEA site to the Burbank Town Center? Or are we just giving money away because the Town Center asked for it? I heard not one member of the City Council ask any of these questions.
I am not against the city giving businesses incentives; in fact, I am for it. However, if the City Council doesn't ask thoughtful questions, it cannot determine whether this deal was a steal for the city or a multimillion-dollar bungle.
RYAN FORD can be reached at email@example.com.